Thursday, March 24, 2022

More notes on funding a basic income in 2022

 So, while I provided my official basic income plan for this year yesterday, I did want to create another post discussing some notes and shower thoughts on it that I had in planning and updating it. 

The amounts

I looked at a bunch of different amounts. With the federal poverty line at $13,590 for an adult and $4,720 per additional person, last year's plan was insufficient. The adult amount was only $13,200, but the child amount was $4800 and just enough. I went with those numbers last year to come up with something even. It was something I came up with since I introduced my original $12,000/$4,000 numbers in 2014, and I figured that if I sold my plan as $1,100 a month for adults and $400 for a child, while the numbers were a little uneven at the yearly level, they worked for the monthly level. 

That said going forward, I had 3 major tiers for amounts considered.

1) $13,800 per adult, and $4,800 per child, leaving the child amount unchanged while raising the adult amount above the poverty line to $1,150 a month.

2) $14,000 per adult and $5,000 per child, which would be more generous and be flat yearly amounts.

3) $14,440 per adult and $5,100 per child, amounting to $1,200/$425 a month. 

I did also consider even higher amounts like $5,400 per child, or $15,000 per adult, but given what I was working with that seemed like way too big of a bump, and because I also propose other major programs like medicare for all and free college, I tried to keep the amounts reasonably low to accommodate those other programs. 

Ultimately, I decided to start with the highest amount I saw feasible, see how the numbers worked, and if I didn't like the results, I would swap to a more conservative number. Generally, the metric for this was keeping taxes at, at most, 20-21% for the flat tax. Everything else I build into my plan automatically like spending cuts, and then I take the remaining amount and play around with the numbers. 

Simulating the effects of differing amounts

Based on an eligible adult population of 249,098,187 adults and 70,258,463 children:

For the $14,000/$5,000 amounts, UBI would cost $3.838 trillion

For the $13,800/$4,800 amounts, UBI would cost $3.775 trillion

And to add some higher/lower amounts:

For the $16,500/$6,000 amounts (hypothetical even higher UBI), UBI would cost $4.532 trillion

For the $15,000/$5,400 amounts (hypothetical higher UBI), UBI would cost $4.116 trillion

For the $13,200/$4,800 amounts (2021 numbers), UBI would cost $3.625 trillion

For the $12,000/$4,000 amounts (2014-2019 numbers), UBI would cost $3.270 trillion

For the $9,600/$3,300 amounts (hypothetical UBI lite), UBI would cost $2.623 trillion

For the $7,200/$2,400 amounts (hypothetical UBI lite 2), UBI would cost $1.962 trillion

For all but the UBI lites, if I assume that we cut the same spending and propose the same carbon tax that my UBI actually did (which would account for $1.214 trillion of the costs), the flat tax for these plans scales like the following:

$16,500/$6,000 =  21.2%

$15,000/$5,400 = 18.5%

$14,400/$5,100 = 17.5%

$14,000/$5,000 = 16.8%

$13,800/$4,800 = 16.4%

$13,200/$4,800 = 15.4%

$12,000/$4,000 = 13.1%

As you can see, this year things scale pretty well. I'm honestly surprised they scale this well. But that's what happens when you get a decent amount of economic growth combined with inflation and high welfare spending. Had I known this, I might've actually pushed for the $15,000 number. But I thought it would be unrealistic based on last year's plan. Still, it is good to be somewhat conservative due to the welfare spending being lower most other years. Speaking of welfare spending, for the designated UBI lite programs, I would NOT cut welfare spending. Because that would leave people on existing programs worse off. So that means for the UBI lites, only $583 billion would be offset by other spending. Due to this, the tax rates for the two UBI lite plans I proposed would be:

$9,600/$3,300 = 13.1%

$7,200/$2,400 = 8.8%

Yikes. Removing welfare cuts raises in taxes such a way that I could just offer the $12,000/$4,000 plan. Honestly, whether we prefer $9600 with welfare or $12000 comes up to ideological preference. I could imagine welfarists defending the $9600 UBI lite plan on the basis of welfare being so good toward the people it does benefit. I could see an argument for it. But honestly, by the time you get up to $12,000, you're ALMOST up to a full UBI, so idk. I mean, you could go either way here. The $7200 UBI is also extremely doable under this model. 

All in all, which amounts are best? It depends where the tradeoffs were. If I wanted a 1:1 tax rate with last year's plan, the $15,000/$5,400 plan is actually best. I guess I didn't set my ambitions high enough. Still, the $14,400 plan keeps up with inflation and would save a little money overall. And given the fact that given how some other numbers work this year, I think being conservative is best to avoid a shock whenever i do a UBI in 2023 or 2024. It's still comfortably above the poverty line and meets my requirements for a UBI. That said, i would like to now modify a couple spending cut items on the list to modify how it influences my UBI model.

How welfare spending cuts affect UBI tax rates

 EDIT: This section has been redone due to updated information.

So, let's be honest, a $631 billion welfare budget for smaller programs isn't normal. Last year, I only had about $275 billion in welfare cuts. 2019 had similar numbers at $269 billion, which I guess is "normal". However, USgovernmentspending.com seems to put future budgets around $500 billion or so, with the 2023 budget projected to be $504 billion. So only a $127 billion less than what my current budget assumes. This is the number I'll be using for this projection.

That would put the main $14,400 UBI plan tax rate at: 18.7%, so not as bad as the original shift to 19.8%. Rather than a 2.3% jump, this is only a 1.2% jump. This means that the rest of the UBI plans would shift 1.2% too, leading to the following scaling with UBI amounts:

$16,500/$6,000 =  22.4%

$15,000/$5,400 = 19.7%

$14,400/$5,100 = 18.7%

$14,000/$5,000 = 18.0%

$13,800/$4,800 = 17.6%

$13,200/$4,800 = 16.6%

$12,000/$4,000 = 14.3%

Compared to the original 2.3% jump, this looks pretty mild, with amounts under $15,000 all being sustainable, and my $14,400 amount being very similar to the rate I had last year. Honestly, any amount from $13,800 to $15,000 is acceptable here.

 How military spending cuts affect UBI tax rates

Our military spending actually has the opposite problem. Under normal conditions, I would want to cut that, and I think my 20% proposal is reasonable. Given China only spends like, what, $250 billion on military a year, and Russia spends $70 billion (and it shows), even $600 billion sounds like overkill. But, let's face it. Trying to cut military spending right now during what's happening with Ukraine and all of this pro war and pro military sentiment makes that questionable. After all, we're see the effects of having a nearly $800 billion military budget vs one 1/10 that size. We actually have logistics, we have superior technology, we have well trained soldiers. And I really don't know what the effects of my proposed cuts would be in practice. While I think we could adjust and still be the top dog by an overwhelming margin, we're geared to take on a multiple front world war 3, at any second right now. And we would probably win it. 

At the same time, you have to think, is WW3 even likely to be a realistic occurrence? I mean, Russia is showing its hand, and it can't even take Ukraine. And NATO isn't even involved. We're giving them weapons. But we're not fighting. And it seems clear even without US involvement I'm sure the rest of Europe could easily handle Russia given the state of its military. 

China is another question. China is the country that we're going to have to REALLY compete with in the future, as their economy is going expand dramatically as it modernizes, and eclipse ours just due to the sheer population numbers. China is poor as crap on a GDP per capita level, but it evens out in practice due to their massive population. As the 21st century progresses, China is going to be a massive military and economic player, potentially even surpassing the US. 

But how likely is war, given the nuclear threat? Not particularly, actually. While various youtube channels will talk about a realistic conflict between the two, we still have an overwhelming force and could win a conventional war in my opinion. And given things like nukes, and our economic interconnectedness at the moment, it seems unlikely that China and the US would want war anyway. Even sanctioning Russia is messing with the world economy to some extent. Shutting china out would be devastating. So it's unlikely that the US or china are going to want to fight. We should be prepared for the event if it does happen and China decides to move on Taiwan or something. But honestly, I think we can win. 

Still. Even if a 20% military cut is, at the moment, justified in my opinion, is it politically feasible? Well, that's another question. Probably not. Which is why I want to look at what UBI tax rates would look like if we didn't cut the military.

Given the $1.214 base of spending cuts + carbon tax, removing the military spending would bring us down to $1.058 trillion.

And that would mean my $14,400 UBI would require an 18.5% tax rate. So it would increase the tax rates by 1%. Applying this to the rest of the curve, we would get:

$16,500/$6,000 =  22.2%

$15,000/$5,400 = 19.5%

$14,400/$5,100 = 18.5%

$14,000/$5,000 = 17.8%

$13,800/$4,800 = 17.4%

$13,200/$4,800 = 16.4%

$12,000/$4,000 = 14.1%

EDIT: This part has been edited to reflect the new data above.

This is comparable to the welfare spending reduction. And combining the two, we would get a curve of:

$16,500/$6,000 =  23.4%

$15,000/$5,400 = 20.7%

$14,400/$5,100 = 19.7%

$14,000/$5,000 = 19.0%

$13,800/$4,800 = 18.6%

$13,200/$4,800 = 17.6%

$12,000/$4,000 = 15.3%

At this point, anything up to my $14,400 number is still acceptable. Still, ideally we would like it to be a little lower I think, with the $13,800 being roughly equivalent to last year's plan in terms of tax rates. Still, given this is the worst case scenario as far as reducing spending cuts goes, it's still not bad, and shows that my $14,400 plan still seems to be the "right" amount. Honestly, anything from $13,800-$14,400 is acceptable in my opinion.

Experimentally accounting for work reduction

As we know, we could probably expect a 12.5% drop in work hours in the labor force if UBI were implemented. While I'm not sure that would translate directly to a 12.5% drop in income according to the above formulas. In reality it would probably only apply to wages and salaries, which would represent a $1.361 trillion reduction in taxable income. This could have further ripple effects through the economy that I can't necessarily anticipate, but if we also took into consideration business income, it would translate into $1.788 trillion in reduced income, bringing taxable income down to $13.476 trillion. 

Assuming normal spending cuts of $1.214 trillion, this would mean that the tax rates would look like this for UBI.

$16,500/$6,000 = 24.6%

$15,000/$5,400 = 21.5%

$14,400/$5,100 = 20.3%

$14,000/$5,000 = 19.5%

$13,800/$4,800 = 19.0%

$13,200/$4,800 = 17.9%

$12,000/$4,000 = 15.3%

$9,600/$3,300 = 15.1%

$7,200/$2,400 = 10.3%

That said, a UBI work reduction would also affect the tax rates. To be fair, I applied the same work reduction across the board. It's unlikely that the "UBI lite" plans would have ANY significant work reduction, and the problem would get worse the higher the UBI is. Still, assuming 12.5%, which is a good median estimate, we can see that it would effectively limit the UBI amounts to $14,000 or less, with me being most comfortable in the $13,000 range, but it could be done. Combining it with the modified/reduced spending cuts though would reduce the amounts of UBI we could sustain further though. Back down to sub poverty line levels. 

Honestly, what the proper amount is depends on all of these factors. Under my current model, we could sustain $15,000 pretty well. i go $14,400 to be more conservative (and even then I thought this was very ambitious), but depending on the factors something in the $13000 or even $12000 range would be better.

Still, one thing I would say about the work reductions is that this would only happen if we implemented UBI overnight. I don't really support implementing it overnight. I would actually support starting low and raising it over the course of say, 5 years. Perhaps $3,600/$1,200 the first year, $7,200/$2,400 the second year, $10,800/$3,900 the third year, $14,400/$5,100 the fourth year. And then the 5th year raising it to what the proper amount should be accounting for inflation. Assuming on average 3% inflation a year, we're talking about $16,700 or so in 5 years. Let's just say $16,800/$6,000. Given 5 years of growth too, 2% per year roughly, we would blunt at least some of that lost productivity. 

That's kind of the thing about economies, and that's why our current one is messed up. As long as things happen slowly, the economy can absorb it fairly well. Problems only happen when you have "shocks". Shocks happen when something changes suddenly that alters the economy significantly. And the past two years have been nothing but shocks. That's why the economy is messed up. In 2020, we stopped all of this economic activity overnight causing an insane depression like apocalypse with 14% unemployment and 33% loss in GDP. The economy then adjusted to this new normal. Then we opened up everything again and suddenly there's more jobs than people willing to do them, and shortages of goods with way too much demand, and it just drove the prices of everything up. because the economy adjusted to the pandemic's normal and is struggling to keep up now. The economy is a finely tuned machine. We keep it that way via the federal reserve and out budgetary considerations. If something changes on a dime radically, then things go wrong. If things change slowly, we can tolerate it. This is why I understand why people are leery about implementing UBI, but at the same time, I think we can account for those effects by doing it slowly.

That said, in this sense, it's better to have 5 years of relative stagnation with UBI being integrated into the economy slowly, than it is to have 5 years of growth, and then an economic contraction/recession. Especially with all of this money being injected at the bottom where demand raises the most. It could cause stagflation and knock the economy out of whack. That's why slowly implementing UBI is necessary. Any major idea like this should be implemented slowly to minimize the risk of bumps. 

Given inflation, what IS the right UBI amount?

Well, given I supported a $12,000 a year idea back in 2014, applying inflation to that, I get $14,381.39. That actually means my $14,400 is equivalent to my original 2014 plan, which is about right. I actually waited way too long to raise the UBI, with my UBI and depreciating slowly below the poverty line for several years, before I finally raised it in 2021. What took so long? Well, in 2016 it was kind of sort of good enough and still just above the poverty line, and then Yang used the same number during my third iteration of my plan in 2019, which, combining my plan with his, led to me keeping the number. Then post 2020 when I looked to update it, I decided yeah, this needs to be raised. Honestly, $13,200 was probably what it should've been in 2019-2020. But, I didn't get on it until 2021, and my $1100 a month upgrade was still less than my original $1000 a month plan back in 2014, and closer to what it was worth in say, 2016. All things considered, if I plug in $13,200 in 2021, I get $13,800 or so today. So, that means that even a $13,800 plan would be adequate to keep up with what I did last year, but it is kind of relaxed, similar to what my $12000 plan became in the late 2010s. 

Still, I guess anything from $13,800-$14,400 is adequate, which means my original targets were actually dead on. All things considered I'm glad I went the ambitious route and it worked out. My UBI is worth as much as it was when I originally proposed it.

Conclusion

I wrote this because there was a lot more I wanted to do with my UBI plan. I wanted to look at what different amounts would cost, and how we could afford them, and it turns out, I actually ended up being more conservative than I thought I was. At the same time, my good fortune also depends on actually being able to achieve the spending cuts I lay out, with other scenarios making the higher amounts less feasible. Finally, I tried to simulate a work reduction, and while it would impact how UBI would be implemented, it would only affect things on a margin of a 2-3% tax rate change. 

All in all, the final amounts of what UBI are feasible depends on many of the factors discussed. I feel comfortable recommending me $14,400 model for now, but I wouldn't have a problem moving back to a $13,800 if I absolutely had to. Again, I aimed high, and am pleasantly surprised by how the numbers worked out. But I would be willing to shift down to a slightly lower number if needed. 

And that concludes my look into affording UBI to my knowledge for this year. I don't know if I'll write further on this topic but that seems to cover the gist of what I studied.

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